Attention brothers ⚠️ Tonight, the Federal Reserve will announce the latest interest rate decision.
The market generally expects that this meeting will keep interest rates unchanged.
The latest data shows that the U.S. inflation rate has dropped to 2.8% (expected to be 3.1%),
while the Truflation real-time inflation indicator has fallen to 1.7%,
these data may prompt the Federal Reserve to lower interest rate expectations in the dot plot for 2025.
From the patterns in the charts, this time, market risk appetite may warm up, and risk assets may welcome a rebound, a rate cut is necessary, we just need a little time, Trump and Little Horse are working hard on some maneuvers. The arrival of economic recession will force interest rates back down to zero levels.
- The purple line represents the (predicted) interest rate expectation path by Federal Reserve committee members.
- The red line represents the (predicted) interest rate trend path if an economic recession occurs.
In the current situation, it is indeed a tough choice
to prevent inflation and recession, but the current inflation data is good, and the economic data is softening rather than declining, keeping interest rates seems quite comfortable;
However, with the financial environment deteriorating, potential economic growth slowing, and inflation expectations soaring, it seems that the Federal Reserve should do something in this situation — raising or cutting rates directly seems inappropriate, and managing expectations is also very contradictory — the economy is good, inflation is stable, so why should we raise or cut rates? If rates are cut in the future, does it imply that the economy is weakening (clearly there is no risk of deflation)? If rates are raised, does it imply that inflation is worsening?
Now, with such weak market sentiment, Powell's answer could lead to a market crash if not careful, the best response may still be: the economy is good now, if the situation is not right, we will take action to raise or cut rates in advance. Soothing the current situation + ensuring future market support, killing two birds with one stone.
The market generally expects that this meeting will keep interest rates unchanged.
The latest data shows that the U.S. inflation rate has dropped to 2.8% (expected to be 3.1%),
while the Truflation real-time inflation indicator has fallen to 1.7%,
these data may prompt the Federal Reserve to lower interest rate expectations in the dot plot for 2025.
From the patterns in the charts, this time, market risk appetite may warm up, and risk assets may welcome a rebound, a rate cut is necessary, we just need a little time, Trump and Little Horse are working hard on some maneuvers. The arrival of economic recession will force interest rates back down to zero levels.
- The purple line represents the (predicted) interest rate expectation path by Federal Reserve committee members.
- The red line represents the (predicted) interest rate trend path if an economic recession occurs.
In the current situation, it is indeed a tough choice
to prevent inflation and recession, but the current inflation data is good, and the economic data is softening rather than declining, keeping interest rates seems quite comfortable;
However, with the financial environment deteriorating, potential economic growth slowing, and inflation expectations soaring, it seems that the Federal Reserve should do something in this situation — raising or cutting rates directly seems inappropriate, and managing expectations is also very contradictory — the economy is good, inflation is stable, so why should we raise or cut rates? If rates are cut in the future, does it imply that the economy is weakening (clearly there is no risk of deflation)? If rates are raised, does it imply that inflation is worsening?
Now, with such weak market sentiment, Powell's answer could lead to a market crash if not careful, the best response may still be: the economy is good now, if the situation is not right, we will take action to raise or cut rates in advance. Soothing the current situation + ensuring future market support, killing two birds with one stone.